Missing the Point

Ever since City Planner Andrew Thomas released the first draft of his plan for enabling the City to meet the 5,353‑housing‑unit quota assigned to it by the regional planning authorities, there’s been a lot of talk about getting the federal government to remove the cap on the number of new residential units that may be built without penalty at Alameda Point.

“Bust the cap,” goes the slogan – we admit, we’ve uttered those words ourselves – and the City can meet the mandate by sticking all (or most) of the required units on the vast acreage once occupied by the Alameda Naval Air Station.

Repeatedly, Mr. Thomas has had to explain that it’s not quite that simple.  But what gets lost in the back-and-forth is the part of his plan that calls for building additional housing units at Alameda Point even if the existing cap stays in place.  That’s what we want to discuss today.  As it happens, this aspect of the plan won’t be a stroll in the park, either.

From the beginning, Mr. Thomas has made it clear that he wants to put as many additional housing units at the Point as he can, regardless of whether the cap is lifted.  His current target is 1,482 units, calculated this way:  (1) 962 market‑rate units still available under the cap, plus (2) 320 new affordable units required by the settlement agreement with Renewed Hope to support the 962 market‑rate units, plus (3) 200 affordable units intended to replace the housing currently provided by the Alameda Point Collaborative.

Where will these units go?  There are two obvious possibilities:  the current Site A development and the proposed West Midway/RESHAP development located north of Site A.  The staff report Mr. Thomas prepared for the  Planning Board Monday allocates 700 units to Site A and 582 units to West Midway/RESHAP.

As things stand today, however, neither the developer of Site A (Alameda Point Partners) nor the market‑rate developers of West Midway (Brookfield Bay Area Holdings and Catellus Development Corporation) is contractually obligated to build anywhere near that many units on its site.  This means that, for the City to meet Mr. Thomas’s 1,482-unit goal, it’s going to have to cut a deal with the current developers – or find another developer who can fill the gap within the upcoming eight-year RHNA cycle.

Let’s start with Site A.

The original Disposition and Development Agreement between the City and APP gave the developer the right to build 600 market‑rate and 200 affordable units at Site A.  Most of these units – 544 market‑rate units and 130 affordable units – were planned for Phase 1 of the project, with the balance in Phase 2.

To date, APP has built (in partnership with Eden Housing) all of the low-income units included in Phase 1 – a 70‑unit “family” building and a 60‑unit “senior” building.  At the same time, however, it has constructed only 324 of the 544 market‑rate units.

Still remaining to be built as a part of Phase 1 is a 220‑unit apartment complex planned for a block located next to the Seaplane Lagoon.  A partnership formed specifically to develop this building borrowed $20 million from a real estate investment trust, but the partnership defaulted on the loan in September 2020.  The REIT took title to the property under a deed in lieu of foreclosure in April 2021, and its residential development arm is now in charge of the project.  It expects to begin construction this year.

As for Phase 2:  As of now, it’s essentially dead in the water.

The original DDA provided that the City was supposed to convey the land for Phase 2 to APP in October 2018.  At APP’s request, the closing was extended several times to October 2020.  But APP did not satisfy the conditions for transfer by that date, so the transaction never occurred and the City still owns the land.

Moreover, it became apparent that the proceeds from land sales in Phase 2, as currently configured, won’t generate enough funds to enable APP to build the infrastructure for that phase.  Even if APP developed and sold the lots on which the 56 market‑rate units and 70 moderate‑income units now included in Phase 2 are located, the sales would yield far less than the estimated $57.6 million infrastructure cost.

The result is that, as of today, none of the Phase 2 infrastructure has been built, and, of course, until it is, no vertical construction can occur, either – and none has.

And it gets even more complicated.

Phase 2 of Site A lies immediately south of the land designated for the West Midway/RESHAP development.  According to Mr. Thomas, the Phase 2 infrastructure ties into the infrastructure for West Midway/RESHAP, and if the former isn’t built, the latter can’t be, either.

So what happens next?

Close readers of Council agendas will have noticed that, since May 2020, Council has discussed the “price and terms” of a deal with APP in closed session on a dozen occasions.  As usual, the formal “announcement” of the results of the closed sessions has been remarkably opaque:  “Staff provided information,” it typically states, without saying what the information consisted of; “Council gave direction,” it then adds, without saying what the direction was.

(The agendas also suggest that the City is contemplating, or has contemplated, taking legal action against APP:  “initiation of litigation” appeared on the agendas in May and September and is on the agenda for the next Council meeting on January 18.  City Attorney Yibin Shen, however, told us that no suit has been filed – yet.)

To find out the current plans for Site A, we got in touch with Stephanie Hill, vice president/development at Trammell Crow Residential, one of the partners in APP.  Ms. Hill told us that APP intends to present a term sheet for a revised deal for Site A to Council in February, and she was kind enough to give us (and our readers) a preview of the proposal.

Under the revised deal, APP will seek the right to build a total of about 700 more housing units at Site A, consisting of (1) the 56 market‑rate units and 70 moderate‑income units included in the current Phase 2, plus (2) another 570 new units, of which 25 percent will be affordable and the rest market‑rate.  (Ms. Hill told us that APP is “evaluating a number of different iterations” for the affordable‑housing piece, including a partnership with a non‑profit developer like the one used for the “senior” and “family” buildings in Phase 1.)

The units would be built on land that is currently part of the Phase 2 parcel and on a block in Phase 1 that is currently designated for non‑residential use.

(We also asked Ms. Hill about the letter of intent, executed in September 2018, to develop the 70 moderate‑income units as workforce housing for Alameda Unified School District teachers and employees.  She said APP was “looking into alternatives outside of the LOI.”)

So there you have it:  If Council approves the term sheet, which will take an affirmative vote of four Council members, APP will get the additional units it needs to be able to pay for the Phase 2 infrastructure (and presumably, earn a profit, or at least avoid a further loss) – and Mr. Thomas will get the 700 units he wants to count against the RHNA.

Now to West Midway/RESHAP.

The genesis of the development was the “specific plan” for the so‑called Main Street Neighborhood, which called for replacing the old Navy housing currently managed by APC with 200 new units, plus 67 additional affordable units.  To make this possible, a for‑profit developer would be responsible for constructing the infrastructure for the entire area, including the affordable‑housing site.  In exchange, the developer would get the right to build up to 260 market‑rate units and 31 moderate‑income units on an adjacent parcel.  (The overall project became known as “West Midway/RESHAP,” reflecting its for‑profit and non‑profit components, respectively.)

The affordable‑housing piece of the plan came together pretty quickly, and the City entered into a Disposition and Development Agreement with a consortium of non‑profit entities in May 2018.  The for‑profit piece proved to be more difficult.  After issuing a Request for Qualifications in February 2019, the City chose a partnership between Jamestown/Cypress Equity Investments and APP to develop the West Midway project.  But first Jamestown, and then APP, backed out, and the City started all over again with a new RFQ.  This time, a joint venture between Brookfield and Catellus – both of whom had been among the unsuccessful respondents to the first RFQ – got the nod.  The City entered into an Exclusive Negotiating Agreement with them in October 2020.

Fifteen months have passed, and the parties haven’t yet signed a DDA or a Development Agreement.  But in the meantime, the City found out about its 5,353‑unit RHNA allocation.  Although the West Midway/RESHAP area probably had been on Mr. Thomas’s radar from the beginning as a potential location for additional housing at Alameda Point, he didn’t break out this site separately from Site A until the October 2021 draft Housing Element, which referred to 390 market‑rate units and 130 affordable units at West Midway/RESHAP.  (This includes the 260 market-rate and 31 moderate-income units in the original plan.)

The November 2021 draft increased the numbers to 492 market‑rate units and 143 affordable units.  Now, the staff report for the Planning Board meeting Monday gives a figure of 582 units without any breakdown between market‑rate and affordable units.

Why 582?  Well, if you do the math, Mr. Thomas’s target for Alameda Point is 1,482 units.  APP is willing to do 700 units at Site A, and Mr. Thomas already intends to count the 200 replacement units at West Midway/RESHAP.  That leaves – you guessed it – a total of 582 units to get from that site.

This may be what the City wants – but it needs a partner to dance with.  The original RFQ stated that a “maximum” of 291 units would be permitted in the for‑profit piece of the West Midway/RESHAP development.  If the City now were to allow more than 291 units, how many would Brookfield and Catellus be willing to commit to build – 582 or something else?

To find out, we first contacted Sean Whiskeman, a senior vice president/development at Catellus.  Here’s the answer we got from him:

The City and our Brookfield/Catellus joint venture have been in active discussions on how best to develop the West Midway project in a way that prioritizes RESHAP and its required infrastructure.  As part of those discussions, the City talked with us about increasing our residential density.  West Midway became a logical place to apply additional, available residential units.  We have worked hard with the City and the RESHAP Partners to analyze how best to absorb these additional units in to our development plan, a discussion that is still ongoing.

This response doesn’t reveal a whole lot about the for-profit developers’ intent.  Fortunately, Mr. Thomas was more forthcoming.  He told us that he had approached Brookfield/Catellus about increasing the amount of market-rate housing at the West Midway/RESHAP site by about 100 to 150 units.  To which, he said, he got a favorable reaction:  “We’d like to help you,” the developers assured him.

The final terms of the DDA are still being negotiated.  But Brookfield and Catellus are going to have to give Mr. Thomas a firm number pretty soon so that he can put it in the Housing Element the City intends to submit to the state in March or April.

And if Brookfield and Catellus don’t step up to the plate?  Well, there’s still a lot of land available at the Point on which to build more housing and still stay under the cap.  For example, as a result of a settlement agreement with the City signed in March 2018, AUSD owns 20 acres there.  Perhaps the School District would be interested in looking for a developer to build a combination of market-rate units and workforce housing for teachers and other district employees.  Or maybe the City could make another parcel available for residential development and find a firm that could build housing there during the upcoming eight-year RHNA cycle.

Our only recent experience with real‑estate negotiations was advising the financial secretary of Immanuel Lutheran Church on the sale of the church parsonage, so we won’t venture a prediction on whether the City will be able to cut a deal with any of the current Alameda Point developers (or someone else) that will produce the 1,482 new units Mr. Thomas has slated for the Point.  But we do want to conclude by making a few comments about the economic and political considerations involved.

The City’s primary source of leverage against APP is litigation.  If our elected officials want to play hardball, the City can sue APP, and it probably would win.  (We haven’t tried to enumerate the ways in which APP has failed to comply with the DDA, but we suspect there are quite a few.)

But to what end?  If the City goes this route, the residential development of Site A would come to a halt, and Mr. Thomas no longer would be able to count 700 units against the RHNA.  (Indeed, he probably wouldn’t even be able to count the 126 un-built units left in the original plan).  Moreover, the infrastructure for Phase 2 won’t get built, which may doom the West Midway for‑profit project and take RESHAP down with it.  (Among other consequences, this may make it impossible to count any units attributable to West Midway/RESHAP against the RHNA.)

True, if the City ends its relationship with APP, it can engage another master developer to take over Site A.  But that would take time.  Among other things, the City would need to issue another Request for Proposals, and it might be required to go through the whole “surplus lands” process as well.  In the meantime, Site A will have gone dark for four years or more.

Perhaps the question can be phrased this way:  Which party has the most to lose if no revised deal for Site A gets done?  One could very well argue that the answer is:  the City of Alameda.  To an outfit as big as Trammell Crow, the financial loss might not make much of a dent in the bottom line.  But to the City, failure to reach a deal to rescue Site A may severely damage, if not entirely destroy, its ability to redevelop Alameda Point.

The dynamics are a little different for the West Midway/RESHAP site.  To be sure, the City wants to finalize a deal with the for-profit developers there, too, so that it can proceed with the affordable‑housing component.  It also wants to include more total units at the site so that Mr. Thomas can bump up the RHNA numbers.  But, unlike Site A, the City can’t exert pressure by threatening to sue, since, as far as we know, Brookfield and Catellus haven’t breached the ENA and the DDA doesn’t exist yet.

As a result, the City will need to convince the joint venturers that it’s in their economic interest to build more units than the original plan contemplated.  On the one hand, that may not be tough to do, since more market-rate units usually mean higher profits.  On the other, it puts Brookfield and Catellus in a position to demand concessions from the City as the price of going along.

The City does have one other card to play.  Suppose the for‑profit developers balk at building more units at West Midway/RESHAP.  If Brookfield and Catellus want a DDA, they still will need to commit to construct the site-wide infrastructure.  So the City may be content to let them stick with 291 units – while it finds another place at the Point, or another developer, to make up the shortfall over the next eight years.

Finally, there’s the politics.  Mr. Thomas has made it clear that, if Council fails to approve revised deals for Site A and West Midway, he’ll need to find somewhere else to put the 1,482 units he’s earmarked for Alameda Point.  And where would that be?  Absent a new deal with a new developer at the Point, the only other place for those units would seem to be residential districts throughout the city.  The message Mr. Thomas has been preaching to City officials is clear:  If you won’t take the steps necessary to allow more units at Alameda Point even if the cap remains in place, you’d better prepare your constituents for multi-family high rises on every corner lot in their neighborhoods.

Anti-development – or, if you prefer, “slow growth” – politicians thus may be forced to confront an unpalatable choice:  to preserve the “character” of existing neighborhoods, they may have to tolerate letting Alameda Point become the kind of residentially focused place they never wanted it to be.  Arm-twisting isn’t a pleasant experience for anyone.  But what else can they do?  It’s one thing to have kept SunCal at bay; beating the state Department of Housing and Community Development at its own game is a different matter entirely.

Sources:

Housing Element drafts: 2021-10-25 Ex. 1 to staff report to P.B. – October Draft Housing Element; 2021-11-16 Ex. 1 to staff report – (November) Draft Housing Element

January 10, 2022 staff report to Planning Board: 2022-01-10 staff report to P.B. re RHNA update; 2022-01-10 Ex. 1 to staff report to P.B. – Proposed Locations for New Overlay District

About Robert Sullwold

Partner, Sullwold & Hughes Specializes in investment litigation
This entry was posted in Alameda Point, City Hall, Housing and tagged , , , , , , , , , . Bookmark the permalink.

7 Responses to Missing the Point

  1. No on Z is the new Yes on Z says:

    Let’s say everything falls into place for building more units at Alameda Point; it’s still illegal to meet RHNA this way. California’s Affirmatively Further Fair Housing law says we have to build equitably across the city instead of stacking everything into one area. I hope you can address this in a future blog post because it’s a growing elephant in the room.

    From the time Measure Z failed to now, I will say we have seen an amazing evolution of Anti-Development (or “slow growth”) proponents who backed the No on Z campaign:

    In November 2020, they were against building anything, full stop. That was their campaign slogan.

    Then, they want to raise the cap on the base to build there (despite defeating SunCal years earlier).

    Then, they are okay with building more units in “estuary shopping centers” which is AAPS’s coded language for the shopping malls that are in the West End.

    More recently, they’re okay with California’s AB9, as long as it’s 4 units per lot. At this rate,

    At this rate, in a few more months, the “No on Z” folks will basically beg to run the next “Yes on Z” campaign!

    • Buy a map, Jason says:

      There are two East End Shopping centers on the estuary – Bridgeside and Park St Landing. There are no West End centers on the estuary (Alameda Landing near but not on).

    • David says:

      The undeniable reality literally on the ground in Alameda is that the raw land available for development that doesn’t entail a repeat of tearing down single family homes – Victorian, Craftsman, or otherwise – and putting in their place aesthetically gross apartment blocks, lies west of Webster Street.

      • Publius says:

        And since the Z campaign explicitly promised that repeal would never bring back knockdowns, and we all know how scrupulously honest they are, they are surely aware that west of Webster is the solution. Why is there even a discussion?

      • No on Z is the new Yes on Z says:

        Not at all. Perhaps you missed the discussions going on the past year about this. Mixed use development will get Alameda there. Harbor Bay Landing, the Harbor Bay Club, South Shore, Marina Village, etc are all prime candidates for this. Retail on ground floor, residential second floor and up, or to the rear. It is illegal, according to the state, to stack all new development projects to one part of town.

    • WalkDon'tDrive says:

      Aren’t many of the city’s small, affordable, multi-unit houses already “equitably distributed” across Alameda? A casual bike ride or stroll down any number of streets reveals many houses with multiple addresses and mailboxes, not to mention separate apartments/units in back, at the end of long driveways but all on the same lot. I happen to live in one such apartment house (i.e. not a complex but a single large Edwardian). My guess is that many such sub-divided houses, including those with small apartments on basement floors, were created before Measure A. In any case, “equitably” is a curious term, implying some kind of fairness and equal shouldering of the burden. But is it equitable to pack more people and vehicles into these neighborhoods when new residents can enjoy more space at the point? Once infrastructure, shopping, and services are complete, residents will have more conveniences, if less beauty, depending on one’s preference: old growth trees versus bayside pathways.

      The other elephant in the room would appear to be a 17-foot super-pickup truck or SUV–too big and intrusive for navigating–or navigating around–on Park or Webster before
      it heads home to find a space on one of the “two way” residential streets. If this were Montana or Nevada, I’d understand. But, once again, it’s a congested island city.

      Prediction: In the next decade or two we’ll see erection of a bridge over the estuary that connects the point to the Oakland Army base, where additional affordable housing will be built, making the two bases into their own semi-urban focus. And BART will have to run a track there with connections to Treasure Island, Alcatraz, and Tiburon. Future shock. Well, it was beautiful and peaceful while it lasted.

  2. Jmac says:

    How can the state require additional housing when they cannot guarantee power and water for the housing we already have?

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